TMI Blog2022 (8) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... for smooth running of business of the assessee i.e., generation of power.Therefore we have no hesitation in holding that the replacement of spares in the machineries would be allowable as Revenue expenditure only and addition made by the AO is directed to be deleted. Disallowance u/s 80IA - audit report was filed by the assessee before completion of the assessment - It is settled law that filing of tax audit report during pendency of assessment proceedings is sufficient compliance for claiming deduction under section 80IA. Set off of losses as per section 80IA(5) for computation of income of eligible unit - As the term initial assessment year would mean, the first year opted for by the assessee for claiming deduction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following substantial questions of law: (a) Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT is justified in upholding the decision of the Ld. CIT(Appeals) in deleting the addition of Rs. 3,66,94,613/- made on account of disallowance of expenditure incurred on capital stores and spares claimed as revenue expenditure instead of capital expenditure? (b) Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT is justified in upholding the decision of the Ld. CIT(Appeals) in deleting the addition of Rs. 3,66,94,613/- holding that the replacement of spares in the machineries would be allowable as revenue expenditure only, without appreciating the fact that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the replacement of parts of a larger machine would not amount to creation of a new asset or incurring of capital expenditure and it would be a revenue expenditure as the manufacturing activity is carried on by the machine comprising of various parts and where one or more of the parts is replaced, it would not amount to replacement of the whole. 6. The CIT (Appeals) relied on the decision of the Hon ble Supreme Court in case of CIT vs. Sarvana Spinning Mills Pvt. Ltd reported in 293 ITR 201. 7. With regard to disallowance of claim under section 80IA of the Act, 1961, CIT(A) held that filing of audit report is procedural in nature and if the same is submitted before finalization of assessment, the legal requirement would be sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . d. It is also seen from the Original Equipment Manufacturer namely BHEL/General Electric, USA have very categorically prescribed the operating life of the above bucket which helps to ensure trouble free operation and to avoid any catastrophic damage to the machine. e. Further it is also stated that by replacement of the buckets on completion of 48000 hours of continuous operation the power generation capacity is neither increased nor is the power plant efficiency or life of the plant gets increased. f. The cost of the Gas Turbine parts such as Buckets and Nozzles are high primary due to very special metallurgy and manufacturing process provided by the manufacturer out side India and the assessee company procures the same by impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80IA of the Act, 1961, the Tribunal followed the decision of this Court in case of CIT vs. Gujarat Oil and allied Industries (supra) considering the fact that the audit report was filed by the assessee before completion of the assessment. The Tribunal, relying upon the aforesaid decision of this Court, held that it is settled law that filing of tax audit report during pendency of assessment proceedings is sufficient compliance for claiming deduction under section 80IA of the Act, 1961. 10. With regard to the issue of set off of losses as per section 80IA(5) for computation of income of eligible unit, the issue of initial assessment year is considered by the Tribunal on the basis of material placed before it and Circular No. 1/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, 1961. The Tribunal, following the decision of the Apex Court and the Circular No. 1/2016 issued by the CBDT, rejected the appeal filed by the Revenue allowing the claim of deduction under section 80IA of the Act in favour of the assessee. 12. Considering the above findings of fact arrived at by the Tribunal with regard to the claim of the assessee for the cost of spare parts as revenue expenditure as well as the deduction under section 80IA of the Act, 1961 in view of the CBDT Circular No. 1/2016 dated 15.02.2016 as well as the decision of the Apex Court in case of CIT vs. Sarvana Spinning Mills Pvt. Ltd (supra) and Velayuthasamy Spinning Mills (P) Ltd (supra), we are of the opinion that no question of law much less any substa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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